Foreign Influence Plays Key Role in Housing Debate

At his weekly
press conference in Wellington last
week, Prime Minister John Key was questioned about the idea
of reducing or slowing the rate of housing prices by
limiting foreign purchases.

This isn’t the first time Mr
Key has fielded the idea. But prices are currently rising at
an annualised pace of about 14 percent, led by Auckland with
a pace of 27 percent, and foreign investments continue to
weigh on the public consciousness.

Mr Key replied, “In
terms of foreigners buying, I think we all accept that there
isn’t great data there. But in terms of the data we do
have, it doesn’t support that view….The sales that are
going to offshore are, at best…maybe about 2
percent.”

Mr Key was highlighting the BNZ-REINZ survey conducted last year,
which showed that just 3.6 percent of people buying houses
in New Zealand intended not to live in the country. The
study also concluded that the only 4.5 percent of venders
selling houses in New Zealand were based
offshore.

However, in the end the survey reached the same
conclusion as the Prime Minister. “"Further study is
needed to verify this result especially in the context of
the development of any government policy regarding controls
on foreign purchasing of NZ property”, the survey
summarized.

In pointing to BNZ economist Tony Alexander,
Mr Key claimed that enacting legislation to control foreign
interests would have little net effect. However, Mr Alexander himself said that he would support adopting legislation to limit foreign buying, similar to the system adopted by Australia. A ban of house sales to non-residents, as
well as a tax on all houses owned by Kiwis offshore, are points five and six on Mr Alexander’s eight-point plan for tackling the
housing market, although the economist has indicated that his overall plan is an aggressive approach, only to be taken if the New Zealand government truly wanted to get serious about housing costs.

How can Mr Alexander call for such
sweeping regulation when his statistics show that the
foreign purchases are having such a negligible effect on New
Zealand housing prices?

Because he knows that this is
just the beginning of New Zealand’s burgeoning
relationship with China.

According to the
2013 New Zealand Census, the percentage
of Asian groups doubled between 2006 and 2013, now making up
12 percent of the population. As Statistics New Zealand’s
international travel data shows, much of
the influx consists of people from China, which ranks second
in the most common country of birth for foreign-born
citizens.

In 2006, the New Zealand government predicted that the country’s Asian
population would reach 790,000 by 2026, increasingly by a
rate of 3.4 percent a year. Considering the Asian population
increased by a rate of more than 100 percent from 2006-2013,
I’m sure the government is rethinking their projections.

In large part, this massive influx of immigrants is due
to China’s rapid economic growth.

Despite the fact that
its GDP has grown at a preposterously fast rate of 10
percent for most of the last decade, in 2011 China boasted a
Gross National Income per capita of only $4,940, which
ranked 114th in the world, just behind Tuvalu. Over 170 million
people in China still live below the $1.25-a-day
international poverty line. Not exactly the type of
statistics you would expect from a world super power.

So
far, China has managed to counter this economic inequality
with massive growth of their economy, success that is slowly
trickling down to the masses. Right now, China’s middle
class, defined by the Organization for Economic Cooperation
and Development as “those with the means to make spending
decisions beyond just subsistence,” consists of roughly
ten percent of the population but is on pace to represent 40 percent by 2020.

As more and more Chinese find themselves with economic
means to travel, or buy commodities overseas, thy will
continue to look toward New Zealand. In 2011, China passed the U.S as New Zealand’s
second-most most common exporter and importer.

The
potential social, political, environmental, and economic
ramifications of China’s rise are huge for New Zealand.
But for now, let’s stick with housing.

Last year, Mr
Alexander wanted to determine how concerned the New Zealand
people really are about rising housing prices. He concluded that only 29 percent of
responders were unhappy, with 42 percent indifferent and 29
percent happy.

However, financial website interest.co.nz decided to figure out
which aspect of the housing crisis New Zealanders find the
most concerning, using Alexander’s own eight-step plan.

In response to being asked which of the eight suggestions
they most favored, 34 percent of the 880 readers who
responded thought that banning house sales to non-residents
was the best idea. This represented the largest block of
supporters for any one plan.

It is likely that this
opinion is founded in the gossip and paranoia surrounding
foreign investors, not in fact. But New Zealander’s
continue to think that foreign influence has played a
significant role in the country’s skyrocketing housing
prices. And statistics can’t say otherwise.

Mr Key’s
response that, “there isn’t great data there,” is
unacceptable. The Prime Minister can continue to point to
Australia’s legislation against foreign housing purchases
for evidence. But China’s rise hasn’t happened
overnight, and the New Zealand government’s lack of
response to Asia’s growing influence represents a much
greater concern than simply a lack of quality data.

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